How Rappers Like Jay-Z Went from Street Corner to Corner Office

Cash Flow

How rappers like Jay-Z have risen from do-rags to riches.

Rap music is the defining American art form of our time. In its showmanship, its exuberance, its hunger for innovation, its love of technology and its ruthless competitive discipline, it represents mass culture in the US like no other medium.

Country music, the only other contender, showcases a different set of equally American values: community, tradition, compassion, patriotism, resilience, faith. But it is principally a domestic phenomenon, largely ignored overseas. Hip-hop, meaning rap music and its associated culture, is both a global force and a central feature of the face America presents to the world. In Russia, for example, Vladislav Surkov, the powerful aide to prime minister Vladimir Putin, keeps on his desk a picture of Tupac Shakur, the Californian rapper murdered in 1996 who has become a global icon of non-specific militancy.

Artistically, rap is often said to be in decline. Aficionados talk wistfully about a golden age, typically dated from about the mid-1980s to the mid-1990s, and now forgotten by today’s performers. Commercially, too, the music has slipped back from its peak around the turn of the millennium, with steadily declining sales through the second half of the 2000s. In 2010, though, hip-hop record sales made a comeback, and this year rappers provided eight of the 31 US chart-topping albums.

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Regardless of the sales figures, hip-hop’s glamour and cultural presence are stronger than ever. In an age where blandness and lack of charisma appear to be conditions of employment for emerging rock and pop performers – only Lady Gaga shows any real individuality – hip-hop’s biggest stars include such vivid personalities as Eminem, Kanye West and Nicki Minaj. Hip-hop has also created some of America’s best-known and best-rewarded entrepreneurs, including Russell Simmons, the founder of Def Jam Recordings and now a self-help guru (estimated net worth $340m), and Sean Combs, better known by his stage names Puff Daddy or P Diddy, but also the head of a small empire with interests in clothing, television and more (estimated net worth $500m). Above all, there is Jay-Z, the phenomenally successful Brooklyn-born rapper who has had more number one albums than any other solo performer, breaking the record previously held by Elvis Presley. Shortly to become the first-ever rapper to headline a concert at Carnegie Hall, with his lyrics the subject of a course at Georgetown University, Jay-Z is emblematic of hip-hop’s passage into the American mainstream.

Together with his wife, the R&B singer Beyoncé Knowles, who occupies an equally imperial position in her market segment, he has an estimated household net worth of $750m-plus. He has described himself both as “the new Sinatra” and “the black Warren Buffett”, and although both epithets display his characteristic braggadocio, neither is entirely undeserved. His track “Empire State of Mind” has become the ubiquitous, instantly recognisable anthem for his hometown to replace “New York, New York”, while if his estimated personal fortune of $450m is still only about 1 per cent of that of the Sage of Omaha, at 42 Jay-Z is still only half Buffett’s age.

The story of how Jay-Z acquired that fortune – as the subtitle says, making the move “from street corner to corner office” – is well told in Zack O’Malley Greenburg’s slender but entertaining Empire State of Mind. Tales of how artists rose from difficult backgrounds to stardom are familiar, as are accounts of how entrepreneurs built business empires from nothing. What is striking about the Jay-Z saga is that it is both. A teenager growing up with an absent father in a tough New York housing estate in the 1980s, Shawn Carter, as he was born, became a crack dealer and continued selling even as he tried to get his music career off the ground in the early 1990s. (His performing name comes from the intersection of the J and Z subway lines near the Marcy Houses – typically dour, brown New York public housing in six-storey apartment buildings – where he grew up.) Today, as O’Malley Greenburg puts it, “As much as Martha Stewart or Oprah [Winfrey], he has turned himself into a lifestyle.” Jay-Z’s personal brand has been extended to clothes, shoes, cologne, Manhattan’s Spotted Pig restaurant and the New Jersey Nets basketball team, through licensing deals and shareholdings. The common thread is that “Jay-Z has a nose for money”. In whatever form his entrepreneurship has manifested itself, as a crack dealer, a rapper or an executive, he has had an acute sense of commercial opportunities, and the determination to exploit them to the full.

O’Malley Greenburg relates a telling anecdote about meeting John Meneilly, the trained accountant who is Jay-Z’s right-hand man. In the course of the conversation, it became clear that if Jay-Z saw no obvious commercial benefit, there was no way he would co-operate with the book. The hope that the rapper might show gratitude for some of his coverage in the past – O’Malley Greenburg writes “The Beat Report”, a music business blog for the Forbes website – seems comically naive.

One of Jay-Z’s frequent boasts is “I’m not a rapper”, implying that he is much more than that, and although he is a prodigiously talented one, he has always seen music as a way to tap other sources of income. The heart of Empire State of Mind is its depiction, helped by some good shoe-leather reporting, of the commercial deals that have enabled Jay-Z to profit from exploiting his prestige and personality. Because of his life story and his talent, Jay-Z had credibility with a huge segment of young consumers, and by picking up a product in song lyrics or a video, he could have a spectacular effect on sales. Celebrity endorsements are a well-established marketing technique but Jay-Z and his business partners such as Damon Dash – the two have now fallen out – realised that it would be much more lucrative for performers to promote their own brands, giving them an equity stake in the products they sold. In 1999, for example, Jay-Z launched his Rocawear clothing line – heavily styled sportswear, often with a prominent logo, aimed at “young hip consumers” – and made sure to promote the brand by wearing it for his public appearances. It now has annual sales of $700m.

Jay-Z’s investment in the Nets has made him a partner of the owner Mikhail Prokhorov, who has said he wants to run for the presidency of Russia. It has also delivered a spectacular return on his initial investment – reportedly $1m – thanks in part to the glow of glamour that he has brought to the previously unprepossessing club.

Steve Stoute, another sometime partner of Jay-Z, now a marketing consultant, is author of The Tanning of America, a blend of social history and business school case studies that actually works surprisingly well to show how the styles, trends and ideas of hip-hop – initially an exclusively urban, African-American phenomenon – spread to a much wider group in the US and around the world. Illustrated liberally with examples from his own career, in the music industry and marketing, advising brands such as McDonald’s, Hewlett-Packard and Wrigley’s, he explains how this movement has changed consumer attitudes and behaviour, and how some attempts to use hip-hop to sell “cool” to consumers succeed, while others fail.

The book is shot through with arresting insights, and the depiction of the power of marketing techniques informed by hip-hop, from Tommy Hilfiger sportswear, which artfully bridged the gap between classic American style and street fashion, to Barack Obama’s election campaign, is highly persuasive.

For the real deal on the business of hip-hop, though, you need Dan Charnas’s The Big Payback – a door-stopping 672-page chronicle of every shady arrangement and glitzy corporate alliance, from the night DJ Hollywood started talking over records at a Harlem bar in 1968 to Obama’s election. Charnas has the ideal background for the job, having been both a journalist on the pioneering hip-hop magazine The Source, and an executive at a couple of record companies. His book provides a fascinating backdrop and counterpoint to other accounts: revealing, for example, that Sean Combs was arrested in 1999 for a brutal attack on Steve Stoute. The incident casts Stoute’s warm words about Combs in his book in a rather different light.

Charnas has a good line explaining the significance of artist/entrepreneurs such as Jay-Z, where he points out that popular culture has always been created by partnerships between performers and business people, but “the source of hip-hop’s singular, spectacular rise was that hip-hop bred individuals who can be both”.

The fate of rappers who lack that commercial instinct can be seen from the career of Common, whose memoir One Day It’ll All Make Sense is a chronicle of relationships and experiences rather than licensing deals and equity investments. His career is far from a failure: he has received plenty of critical plaudits, and is still working after 20 years, releasing a new album this month. He is also a moderately successful actor, with a role in AMC’s highly regarded new Western series Hell on Wheels. But he is never going to reach the pinnacles scaled by hip-hop’s greatest stars. Jay-Z clearly regards him in the same way an investment banker might view a cousin who had gone in to the priesthood: with a mixture of admiration and condescension. “Truthfully, I wanna rhyme like Common Sense, but I did five mil, I ain’t been rhymin’ like Common since,” he raps on “Moment of Clarity”.

Common, born Lonnie Rashid Lynn, had a very different upbringing from Jay-Z, with private schooling and a stable home with his mother and stepfather. His reminiscences of his schooldays include a fibre-optics project at the state science fair, not cooking up crack and shooting his brother in the shoulder, as Jay-Z did. Sometimes his stories are hilariously lily-livered, including an anecdote about freaking out after smoking some strong marijuana and phoning his mother, who was less than sympathetic. He even allows his mother to interpolate lengthy passages into the book. Yet all these signs of weakness make him more sympathetic – you are left with a sense of Common as a more human figure than some of his more commercially successful peers.

That lack of human scale is the hip-hop tycoons’ greatest weakness. The Big Payback ends with an upbeat image of the crowds celebrating Obama’s 2008 victory on Harlem’s 125th Street, close to where hip-hop was born. Setting the scene, Charnas describes Jay-Z and Combs looking down from billboards “as modern demigods”. And demigods can lose touch with the lives of mere mortals.

Chuck D, the leader of the political rap group Public Enemy, recently chided Jay-Z and Kanye West for bragging about their wealth at a time of hardship in America. Having often come from poor backgrounds themselves, rappers tend to be, in Stoute’s words, “unapologetic capitalists”. But the depth of the economic crisis makes the stars’ endorsements of Maybach cars and $300 bottles of Armand de Brignac champagne seem particularly jarring.

That Jay-Z, who has been known to wear a Che Guevara T-shirt, is troubled by this distance can be seen in his uneasy relationship with the Occupy Wall Street protests. Rocawear, his clothing line, launched a T-shirt saying “Occupy All Streets”, which became an instant focus for attacks from the movement – it was intended to be supportive but none of the profits went to the campaign – and was swiftly pulled. In the American tradition, Jay-Z gives generously to good causes: his Carnegie Hall concerts are to raise funds to help low-income students attend college. Like his role model Warren Buffett, he also recently said he would be prepared to pay more in taxes to pay for public education and poverty reduction. But charity concerts and political statements cannot dispel the sense of distance from his audience.

Stoute writes that credibility is essential for any celebrity or brand. When it is lost, consumers’ reactions are “backlash, apathy and boredom”. Appearing at Carnegie Hall and on the university syllabus, hanging out with the possible future president of Russia, displaying the noblesse oblige of the wealthiest, Jay-Z may be in the process of losing his.

This article originally appeared in Financial Times. Click here to read more coverage from the Weekend FT.